No Technology Has Been More Disruptive…

Christian Sandström holds a PhD from Chalmers University of Technology, Sweden. He writes and speaks about disruptive innovation and technological change.

… Than Digital Technology…

… It has invaded industry…

… after industry…

… after industry…

… after industry…

…Television…

…Music…

…Video Surveillance.

This technological revolution has Destroyed or nearly Overthrown hundreds of industrial giants…

All these firms which suffered in the transition to digital technology - Why?

They are so many, and the pattern is stunningly similar…

The first digital products are usually big, expensive and appear as rather silly. They look like toys, and it’s

hard to imagine that a disruption is going to happen…

Despite recognizing the technology, established firms are in the end often destroyed…

To understand this puzzle, we need to dig into the nature of digital technology and its economics.

The transistor is the building block of digital technology.

It is an electronic device which can switch between two modes.

So, it is binary – ONE or ZERO, YES or NO

And what’s so special about that?

Very little information can be stored in one single transistor, so the technology is

initially not capable of much.

The inferior performance of the transistor implied that the inventors were not encouraged to work further on it.

Vacuum tubes was the dominant technology for computers back then, and it was hard to

see how the transistor could possibly replace the tubes.

Ignoring the transistor is a mistake that hundreds of industrial giants would make over

the next decades, often resulting in bankruptcy.

William Shockley and the other inventors left Bell Labs, moved to Silicon Valley

and founded Shockley Semiconductor…

Many engineers left Shockley in order to start Fairchild Semiconductor…

Fairchild was later disintegrated, Gordon Moore among others then founded Intel…

As Intel and other semiconductor firms developed cheaper and better transistors, putting them together

into Integrated Circuits and Mikroprocessors, Gordon Moore recognized a fascinating pattern….

Over time, the amount of transistors that could be put on a circuit for the same price doubled every 18th month!

So for the same price you can buy something which can store twice as much information, every 18th month!

This is Moore’s Law.

The implications are enormous!

If the price/performance ratio

doubles in 18 months… And then doubles again in 18 months…

And then doubles again in 18 months…

Then the price/performance is 8 times higher in only 4,5 years!

16 times higher in 6 years!

Source: intel.com

This is a furious pace of technological development! It implies that as the price of a transistor goes down and

the performance of digital technology increases, virtually everything can sooner or later be expressed or

represented with digital technology.

Let’s take a look at how Moore’s law has improved the graphics in computer games over time…

More and cheaper transistors makes Pacman look better than the Space Invader…

Mario looks better than Pacman…

Super Mario World looks better than Mario from 1985….

And today Link looks better than ever!

The graphics are stunning nowadays! Moore’s law has been working on this for many decades…

Moore’s law can help us to understand why digital technology has disrupted so many industries…

The price/performance ratio is initially much inferior to the dominant technology,

so the technology usually attacks from below.

This calculator cost 395 USD in 1972

The lower initial performance of the transistor was the main reason why Bell Labs thought Shockley should keep working on Vacuum tubes instead…

Vacuum tube technology was after all what the main customers demanded!

Why work on digital technology which had lower performance and is more expensive?

While established firms are busy listening to their customers, Moore’s law

gets ready to disrupt the industry

Drawing upon their competence in the old technology, Olivetti tried to make better mechanical calculators

instead of going into the digital technology.

The Swedish firm Facit encountered the same destiny…

The technology which looked like a silly and expensive toy only a few years ago, would with only a few more years of

Moore’s law overthow the entire industry!

The Swiss watch industry went into the same trap as Olivetti and Facit…..

… And so did Polaroid. They listened to their customers, stayed in the old

technology and were then disrupted by Moore’s law…

The music industry is today painfully aware of Moore’s law and the digital revolution

Those who have dismissed the digital technology as inferior and silly usually have one thing in common…

They’ve paid a terrible price.

Summing it up: Moore’s law – the rapid improvement

of digital technology, has disrupted hundreds of firms and reshaped entire industries.

The high pace of development combined with the fact that digital technology initially has

an inferior performance has created great problems for great firms.

Listening too carefully to current customers, established firms stay in the old technology for too long,

and are then disrupted.

Image attributions

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www.christiansandstrom.org